Deprecation

Question 1

what is the definition of depreciation

Answer 1

depreciation is the systernatic allocation of the historical cost of asset less its residual value over its useful life

Question 2

Why is depreciation an expense

Answer 2

there is a depletion of an asset as it has been used to create future economic benefit

there is a decrease in equity due to a decrease in profit of the business

this transaction has not caused equity to decrease due to drawings of the owner

Question 3

Why is depreciation a limitation of the financial statements

Answer 3

depreciation is only an estimate it could be miscalculated because we can only estimate its residual value (selling price) and or its useful life (year) they only thing certain is its historical cost

Question 4

Does depreciation calculate the market value of an assset

Answer 4

NO !!!

it is an estimation of how much of an asset has been used up or worn out over its useful life when producing income for the business